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Financial Analysis of BHEL: Section B Group 18
Financial Analysis of BHEL: Section B Group 18
Secti on B
Gro up 18
Abhra Majumdar
2010063
Anjali Motwani
2010067
Bhakti Khanwalkar
2010071
Financial Analysis Essential?
• Financial analysis is the process of evaluating
financial and other information for decision-
making
• Accurate financial analysis is a fundamental
element of growth, strategy, and overall
success
• Allows you to allocate resources and evaluate
potential projects for maximum return-on-
investment
• Keep tabs on how your business is performing
• Involves careful selection of data from financial
statements for the primary purpose of
forecasting the financial health of the
company.
• Can be accomplished by examining trends in
key financial data, comparing financial data
Navratnas
• Navratna title was given to the most successful
nine Public Sector Enterprises (PSEs) of India
• 16 Navratna Companies
• Are profit making and globally competent
companies of India
• BHEL
• BPCL
• MTNL
• GAIL
• HPCL
BHEL
• Bharat Heavy Electrical Ltd is the largest
engineering and manufacturing enterprise
in India in the energy related and the
infrastructure sector
• Established more than 40 years ago
• The company has been earning profits
continuously since 1971-72 and paying
dividends since 1976.
• BHEL's operations are organised around
three business sectors, namely Power,
Industry - including Transmission,
Transportation and Renewable Energy -
and Overseas Business
Objectives
• To evaluate the performance of BHEL
by analyzing the Key Financial
Ratios
• To compare the performance of BHEL
with Four other Navratnas
(BPCL,GAIL,MTNL & HPCL)
• To compare the performance of BHEL
with its competitor L&T
– By analyzing the Key Financial Ratios
– By analyzing the stocks (Return and
Risk)
Ratio Analysis
RATIOS COMPANIES
COMPETITOR
BHEL BPCL GAIL HPCL MTNL L&T
L&T L&T
BHEL sharpe ratio = B H EL Treynor ratio =
sharpe ratio = ( expected stock treynor ratio ( expected stock
(expected stock return return - risk free rate) =(expected stock return - risk free
- risk free rate) / / standard deviation return - risk free rate) / beta
standard deviation of of stock rate)/beta
stock
2 . 0928
15 . 51239
3.08642 24.5160
Since the Sharpe ratio of BHEL is Since the treynor ratio of BHEL is
higher than L&T, so the risk- higher than L&T, so BHEL investors
adjusted performance of L&T is will get better yields per unit of
better than that of BHEL risk or BHEL performed better than L&T
Stock Data
Trend Line Analysis
Stock Data
Trend Line Analysis
Conclusion from Ratio Analysis
of BHEL and other Navratnas
• BHEL has the most favourable liquidity ratio
values which indicates a firms commitment
to meet its financial obligations.
• BHEL and GAIL are the most efficient
companies as indicated by their net profit
margin analysis.
• However BPCL follows BHEL in terms of rate
of growth.
• BHEL again is the leader in the percentage
return on capital employed in business and
hence more profit can be invested back into
the company.
• BHEL comes across as a safe company for
investment as well as indicated by its very
Conclusion from Ratio Analysis
of BHEL and L&T
• Liquidity Measurement Ratios, BHEL is better than L&T
• In case of Net profit margin analysis, both the companies
are tied
• When we look as the ROA, L&T is better as it can grow
faster, but ROE and ROCE, BHEL leads the race
• Debt Ratios : BHEL can be considered a safe company to
invest into
• The operating performance ratios portray L&T is better than
BHEL
• The cash flow indicator ratio depict that BHEL is better
performing than L&T
• According to the Investment Valuation Ratios, BHEL
outweighs L&T in the race
• We can interpret that BHEL is better in some aspects than
L&T and needs to work upon some of its financial
management.
Conclusion From Stock
Analysis
– Analysis of historical data shows that
L&T stock is 12% riskier and gives
7% less Return than BHEL
– Also the Sharpe and Treynor ratios of
BHEL is higher than those of L&T
– So Risk adjusted performance of BHEL
is better
Limitations
• The performance comparison has been done with only one
competitor.
• Ratio Analysis of 5 out of 16 Navratnas is done.
• The very basis of technical analysis is questionable. The past data
or price patterns may not be repeated.
• The technical analysis requires great deal of subjective judgement
and decision making. Same graph or pattern can be read
differently by different analysts.
• A variation of the Sharpe ratio is the Sortino ratio, which removes
the effects of upward price movements on standard deviation
to measure only return against downward price volatility.
• Through creative accounting some accounts of the company are
adjusted. Therefore, ratio analysis can give false explanations
to users.
• Comparison of performance over time – cost because of price
changes, technology changes, change in accounting policy &
impact of trading size.
• When ratios are used for intercompany comparison, we must bear
in mind differences between product mixes of companies &
accounting methods used.
References
• http://www.nseindia.com/
• http://www.investopedia.com/
• http://www.andreassteiner.net/
• http://www.bhel.com/
• http://www.larsentoubro.com/
• http://www.bharatpetroleum.com/
• http://www.gailonline.com/
• http://www.hindustanpetroleum.com/
• http://www.mtnl.net.in/
• Annual Financial Report of BHEL
• Verbeek, W. M. (2000). The economic value of predicting Stock
Index returns & volatility
• Westerfield, R. &. (n.d.). Corporate Finance. Tata Mcgraw Hill
DATABASES
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